Basics of Real Estate Insurance

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Anyone looking into real estate investing will need to be up to speed on the insurance that will be necessary, and we’re here to help at Americas Housing Alliance. We know you’d rather skip this expensive step, but it’s absolutely vital to see that months or years of work to a property are protected.

With that in mind, here are a few tips for insurance for investment properties and any kind of real estate investment.

Actual Cash Value Vs. Replacement Cost

Firstly, you need to choose the right kind of insurance – the two primary types here are an actual cash value policy (ACV) or a replacement cost policy.

In cases where a home may need some fixing, it’s possible you’ll be limited to an ACV where the insurance company covers what you paid for the property, minus the value of the land it sits on. Different ACV policies may cover different things, though all will cover small losses. It’s important to note that there’s a downside to ACV insurance – if the structure undergoes major damage, it’s unlikely that enough funds will be paid out to initiate a rebuild.

If you can get it, a replacement cost policy is generally preferred. It includes better coverage, starting with the ability to pay for the full cost of a covered loss minus your deductible. These costs can range all the way up to a fully rebuilt home. The property must be in good condition to qualify for a replacement cost policy.

Coinsurance Penalty

With most insurance policies, you may be subject to a coinsurance penalty for coming in at more than 20 percent under market costs. Let’s say a home would cost $200,000 to rebuild, and you are insured for less than $160,000 of this (under 80 percent) – in this case, any claim you make will be paid out at that same ratio. Make sure you know what value your home is being replaced at so you’re prepared if big issues like this crop up.

Liability Coverage

Finally, make sure you have liability coverage. In general, common limits here will be $300,000, $500,000 and $1,000,000 – it usually doesn’t cost much extra to get to higher coverages, so look in this direction. It’s also recommended that renters be required to carry their own renter’s insurance so that your liability insurance isn’t the only option in case something goes wrong.

For more information on proper insurance for real estate investing, or to find out about any of our other real estate investment services, speak to the experts at Americas Housing Alliance today.